AS GRADUATE BUSINESS PROGRAMS see rising student concerns about high tuition—and some see declining enrollments as well—schools might consider wooing top students with this bold tactic: Slashing tuition. At least two American schools have already taken that step. The Labovitz School of Business and Economics (LSBE) at the University of Minnesota in Duluth has cut tuition by 25 percent, starting in fall 2015; the Simon Business School at the University of Rochester in New York will lower tuition for its full-time two-year MBA by 13.5 percent, starting in fall 2016.
At LSBE, the cost of its 32-credit program has dropped from just over US$38,000 to $28,800 in Duluth and from about $43,200 to $32,000 at a UMD satellite location in Rochester. The reduction comes at a time when other schools at the university are experiencing a slight increase.
Rajiv Vaidyanathan, professor of marketing and director of LSBE’s MBA program, sees the decreased tuition rate as a way for the school to reverse declining enrollments and give it a distinctive position in the local market, which has experienced sharply increased competition. “We wanted to maintain premium positioning, but our tuition was far ahead of many regional competitors,” he notes. “Our goal was to maintain our brand exclusiveness while making our program more affordable.”
The Labovitz School of Business & Economics, University of Minnesota–Duluth
Vaidyanathan advocated for the reduction by putting together a proposal that outlined enrollment trends, shared students’ concerns about tuition, and included tuition rates at nearby schools. “It highlighted the importance of setting tuition based on market forces at the program level, rather than the campus level,” he adds.
The proposal also showed that the school could cut tuition without sacrificing courses or faculty because both locations were running below capacity. “Since the current enrollment was down, the impact of reduced tuition from current students would be minimized,” says Vaidyanathan. “We can make up the lost tuition just by increasing enrollment by four or five students.”
LSBE had tried advertising to shore up enrollments, but the promotional budget was limited, especially compared to other local schools. “The lowered tuition and consequent publicity was actually more cost-effective than spending the kind of money we would have had to spend to break through the advertising clutter,” says Vaidyanathan.
With the new tuition rate, he says, the UMD program still is costlier than some local schools—both those that are AACSB-accredited and those that are not—but less expensive than programs at two of the leading schools, including the University of Minnesota’s Carlson School of Management in Minneapolis, about 150 miles from Duluth. He expects the lower tuition rate to attract students who might otherwise choose to go either to a less expensive, unaccredited school or to Carlson. Since the change was announced, staff at LSBE has seen significant increases in inquiries to the program, interest in prerequisite courses, and visits to the program’s Facebook page.
Other institutions that might benefit from a similar move, he says, are “smaller schools that are facing enrollment declines, that have available capacity, and that have identified high tuition as a significant hurdle for target students.” Graduate programs also are more likely to benefit from a tuition reduction than BBA programs, he notes. That’s because undergrads often choose a campus first, then a major; graduate students identify the degree they want to pursue, then look at campuses that offer that program.
“Cost factors appear earlier in the comparison process for graduate programs than for undergraduate programs,” he says.
Simon Business School, University of Rochester
Starting next fall, the Simon School will drop the cost of its tuition from $106,440 to $92,000. New dean Andrew Ainslie says he spent his first year listening and learning about all facets of the school—and one of the things that caught his attention was that Simon’s MBA program was relatively high compared to most of its peer schools.
“At the same time, we have been one of the most generous in our scholarship support, but that generosity wasn’t visible unless you were engaged with us and had already applied,” he says. The school has instituted a number of changes in addition to lowering tuition: It has made pricing more transparent, it is offering a new loan program for international students, and it is selecting students with more experience.
The new tuition rate puts the Simon School on a par with business programs at peer schools such as Boston University, Vanderbilt University, and Notre Dame, where tuition for MBA programs currently ranges between $94,844 and $98,550. To make the reduction a “revenue-neutral” event, the Simon School simultaneously reduced the amount of scholarship support it offers, though Ainslie notes that the scholarship program remains a generous one.
“I am optimistic that we are going to have a big uptick in enrollment, something in excess of 20 percent in 2017, from the shift in our sticker price alone,” says Ainslie, who believes the former cost of the program caused some prospective students to overlook Simon. So far, he adds, response from current students, alums, and the media has been overwhelmingly positive. “The consensus seems to be that this is a move in the right direction.”